Agency mergers open the way to Asia

Ask
Harold Mitchell
and
Robert Morgan
why they orchestrated deals to hand control of their marketing services companies to foreign owners and their answers are dominated by one word: Asia.

“For years I thought we needed to expand into Asia," says Mitchell, who in July announced the sale of Mitchell Communication Group (the listed media buying and marketing services firm 40 per cent owned by his family) to British company Aegis Group for $363 million in cash and shares.

“We tried to do it with [French marketing company] Havas but it didn’t work. We didn’t have the time or capital to do it on our own. We had to find a way into Asia and Aegis provides that way."

Aegis completed its takeover of Mitchell last month.

Two months after the Mitchell-Aegis deal was revealed, Australasia’s largest marketing services company – Clemenger Group – announced a $150 million offer from US-based Omnicom for half of the shares owned by its 450 local shareholders.

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Morgan, who is Clemenger’s executive chairman, says Omnicom’s offer was driven by the growth potential of the Asia-Pacific region’s marketing services sector.

“Omnicom has an increased focus on Asia-Pacific and it sees Clemenger as a major powerhouse in the region," he says.

“It wants to use our people and techniques to increase its expertise in the region, not just in advertising, but in areas such as retail marketing, government relations and so on." (Clemenger owns 40 marketing companies in Australia and New Zealand.)

The deal with Omnicom, which is being supported by Clemenger’s board, surprised the marketing services sector, given Clemenger executives had boasted for years about the fact it was majority owned by local staff.

“Local shareholders will still own 26.3 per cent and we’ll continue to offer shares to local staff," Morgan says.

“We’ve known Omnicom for a long time and they have indicated all along the way they want us to continue to manage the company and continue as we always have."

Unlike the Clemenger-Omnicom deal, the sale of Mitchell’s company did not surprise the marketing sector. “Everyone’s been waiting for Harold to sell for 20 years," PHD chief executive Barry O’Brien said in July.

Mitchell says he had some initial regrets about not passing his share of the Mitchell group to his children, Stuart and Amanda. Harold and Stuart Mitchell are executive chairman and deputy chairman respectively of the merged Mitchell-Aegis Australia.

“Yes, at one stage I wanted to leave it to the children, but in a rapidly changing marketing and media world we needed to get bigger and get into Asia," he says. “If you’re not flexible, you shouldn’t be in business." The Mitchell family now owns about 5 per cent of London-based Aegis.

Morgan and Mitchell say it is too soon to discuss publicly how their companies will work with their new owners in Asia.

A group of Omnicom executives are visiting Clemenger offices this week. “A number of our companies are talking to Omnicom subsidiaries about helping them with joint ventures and start-ups in Asia, assuming the offer from Omnicom is approved by shareholders," Morgan says.

“There’s also now an opportunity for us to do more things in Australia, that is, to work with Omnicom to invest in new areas." Last week Clemenger bought the healthcare marketing agency Ursa.

Mitchell says he and Aegis executives have devised a plan for the Australian company to expand into Asia.

“I worked it out about a year ago, but we’re not ready to announce anything publicly," he says. A chief executive of the merged Australian company has not yet been appointed.